New Delhi: With India inching closer to April, peak demand for electricity is likely to touch an astonishing 230 gigawatts (GW). Like last year, it appears inevitable that the country will depend on imported fossil fuels to ensure no supply shortfall. Although generation from imported fossil fuels may reduce power cuts, it will add to the fiscal burden. Better planning and tight implementation could have mitigated this dependence on expensive imported fossil fuels. It would have also saved critical financial resources that would find better utilisation in clean energy investments.
Installing renewable energy has a gestation period of 12-18 months. Therefore, planning to add renewable capacity on a war footing at the start of power distress last year, when peak demand touched 216 GW in April, would have saved the effort to scout for imported fuels. While last year was a surprise as extreme heat and post-COVID-19 industrial recovery led to unprecedented electricity demand, authorities must plan additional capacity considering the changing electricity load curve patterns. For instance, peak demand is moving forward in the year, say from September in 2019 to April in 2022, and earlier in the day, from 8-9 pm in the evening in 2019 to 2-3 pm in the afternoon in 2022. This change is favourable for meeting the incremental demand through cleaner domestic resources like solar energy. As a result, it is even more imperative for India to meet its 450GW renewable energy target by 2030.
Planning needs an improvement
The government started planning from last November to meet this year’s demand by ensuring that all generation capacity is ready with maintenance and increasing coal production and dispatch. In addition, it asked generators to undertake timely import of coal for blending up to 6% of their requirement with domestic coal to be pro-rated for defaulters. It had also noted that GAIL (India) would supply 248 metric million British thermal units (MMBtu) of gas to NTPC to operate 5,000 megawatts (MW) of gas-powered capacity for a month from 15 April 2023.
Now, the government has floated fresh tenders to secure an additional 4,000 MW of gas power from other power plants, with NTPC’s subsidiary NTPC Vidyut Vyapar Nigam Limited (NVVN) providing a minimum offtake guarantee. The government will fund any shortfall in cost through the power system development fund (PSDF). Despite taking measures early on to meet the peak demand, there still has been a shortfall in planning which has necessitated a dependence on imported feedstock.
The government has also floated a tender to secure 1,500 MW of electricity from imported coal from 10 April 2023. This would push up the already high prices of electricity that have averaged to Rs 6.18/unit for the first two months of 2023, a 58% increase from last year.
Better utilisation of domestic gas required
There is a limited role for gas-based capacity to meet peak demand and provide ancillary services until storage options are commercially operational. Last year, the peak capacity met was a record high of 211.86GW in June 2022, of which coal supplied 68%, renewables and hydro 26%, and gas only 2%. Notably, only 13% gas-based installed generation capacity of 24.8GW was utilised in June 2022, with incremental supply coming from imported liquefied natural gas (LNG).
Better allocation of domestic gas to power is critical during electricity shortages. Yet, the allocation has decreased since the domestic gas allocation policy change in August 2022. A higher allocation of domestic gas to the city gas distribution sector was mandated to reduce the blending of regasified LNG and make it affordable for end users. This adversely impacted domestic gas-based power generation due to reduced domestic fuel supply.
The 9,000MW of gas-based capacity being scouted might have to be based on imported gas as there is at least a 50% gap in the allocation and requirement. To run 9,000MW of gas-based capacity at 85% plant load factor (PLF), there is a need for approximately 38.5 million metric standard cubic meters per day (mmscmd) of natural gas.
But, the domestic gas allocation to the power sector in the last six months has been 18.7mmscmd on average. The sector needs a higher domestic gas allocation for the coming months to effectively utilise the gas-based capacity and meet the shortfall in power supply.
The recent introduction of high price day ahead market (HP-DAM) for expensive fuel, including imported natural gas, imported coal and battery storage, would allow sellers to a ceiling price of Rs50 per unit, almost 4x the spot power ceiling of Rs12 per unit. While this would probably ensure meeting peak power demand during the summer months, it will be at unprecedented electricity tariffs.
Installing more renewable energy capacity is the only real solution, given that electricity demand patterns are shifting to the time of day and year when sunshine is ample. Moreover, renewable energy is the only non-burdensome solution for the government and consumers.
[This piece was written by Purva Jain, an Energy Analyst at the Institute for Energy Economics and Financial Analysis (IEEFA)]